The preferred theme for the precious metals has been for a test of the highs. Gold made a bounce to 4245 vs. the previous (and all-time) high of 4381. GDX bounced to 79.97 vs. the previous (all-time) high of 85.09.
But silver, being the precious metals wild man that it is, made a full test of the previous high, hitting 54.39 vs. the previous 54.46.
More importantly for the precious metals, commodities and many markets – likely including USD – the Silver/Gold ratio (SGR) is making what looks like a clear double top.
If that is the case, we need to recall the ongoing analysis that while the bounce in the SGR has made a hell of a rally, which we anticipated back in the spring (noted for newer subscribers), it’s major trend is still down.
This weekly chart has indicated and still does indicate a major downtrend, interrupted by the 2020 recovery and failure. Given that downtrend, whatever high the SGR would make that does not take out and clear the previous two highs would be indicated to be a danger point; an extreme just as the low that launched the rally was an opposite extreme.
Bottom Line
If the double top holds and plays out in the Silver/Gold ratio we can expect not only an ongoing correction in the precious metals, but also in commodities, resources, TSX-V, TSX-V/TSX ratio and a good portion of global and U.S. markets.
This analysis would be furthered if USD holds here and turns up again and the 2 Horsemen (Gold/Silver ratio & USD) ride again, bringing market liquidity problems to the macro. Despite the ongoing weakness (including this morning), I am still holding EUO as a way to be pro-USD.
If indeed the Gold/Silver ratio is double bottoming (in a reflection of an SGR double top) and USD holds its trend from September (watch the 50 day average), it could get quite bearish out there by a more dangerous set of indications, joining the already cautionary XLV/SPY ratio (up again in pre-market).
